Accounts Payable Audit Checklist
Accounts Payable means money owed by a company to its creditors. When a ourchase of goods and services is made on credit which needs to be paid back in a decided period of time, it is known as Accounts Payable.
Accounts Payable is one of the important area for any business where chances of fraud are more as its a department from where funds move out out of the organisation. This function has to be managed effectively. Risks, frauds and probable errors associated with Accounts payable must be understood properly. Having strong controls, proper processes and procedures, checklists and regular audit is essential for this function. Following is the checklist for internal audit of Accounts Payable.
1) Categorizing the vendors as high, medium, low value to ensure coverage of big items with minimum costs
2) Checking of Payments where maker and checker is same
3) Payments without description, details about purpose of purchase, need, authorisation.
4) Bills / Invoices against photo copy of delivery challan, or duplicate numbered delivery challans
5) Double payment against same invoice number
6) Checking of cases with advance payment option
7) Bill booking without purchase orders, or purchase orders without proper authorisation.
8) Payments made on weekends or holidays
9) Vendors with payment limit way beyond average payment
10) Vendors with old or not renewed price agreements
Internal Controls for Accounts Payable Function
Every business needs to have strong and effective internal controls for Accounts payable function to minimise the frauds and risks associated with accounts payable function.
1. Segregation of Duties
2. Proper Authorisation
3. Regular matching of accounts statements with creditors / vendors
4. Strong Documentation
5. Data analysis of ledgers and transactions with help of software
6. New Vendor approval system
7. Proper checking of calculations on invoices
8. Review of Debit balances in vendors accounts
Risks Associated with Accounts Payable
1. Frauds by insiders - not utilizing entire credit period, not booking credit notes, booking invoices more than once, making payments against unapproved invoices
2. Frauds by vendors - calculation frauds in invoices, charging wrong rates, charging for extra quantities
3. Calculation mistakes and errors in calculations